The requirement for goods and services tax (“GST”) to be withheld at settlement by a purchaser of certain new residential premises and potential residential land was introduced on 1 July 2018 (“the GST Withholding Provisions”). The GST Withholding Provisions require purchasers of certain residential premises or potential residential land to withhold 1/11th (or 7% – 9% if the margin scheme applies) of the unadjusted GST inclusive contract price and pay it to the Australian Taxation Office (“ATO”) at settlement.
The GST Withholding Provisions are set out in subdivision 14-E of Schedule 1 of the Taxation Administration Act 1953 (Cth) as amended by Treasury Laws Amendment (2018 Measures No.1) Act 2018 (Cth) Schedule 5 and apply to all contracts entered into on or after 1 July 2018.
The transitional rules provide an exemption to the GST Withholding Provisions to contracts that were entered into before 1 July 2018. Under the transitional rules, GST withholding is not required for:
1. a sale contract that was executed before 1 July 2018; and
2. where any consideration for the supply (except for the deposit) is provided by 1 July 2020.
The transitional rules apply from 1 July 2018 to 30 June 2020 which means from 1 July 2020 the withholding requirements may now apply to Contracts entered into before 1 July 2018. Under the transitional arrangements, the vendor remits the GST to the ATO rather than the purchaser.
With the transitional rules end date approaching on 30 June 2020, developers and purchasers will need to ensure that the correct GST Withholding Provisions and transitional rules are applied.
If the GST withholding requirements applies to a contract, the purchaser will need to ensure they withhold and remit 1/11th (or 7%-9% if the margin scheme applies) to the ATO at settlement.
If a purchaser fails to withhold and pay the required amount to the ATO, the purchaser may be liable of an administrative penalty equal to the amount of the GST payable unless the purchaser has reasonably relied on notification by the vendor. The purchaser may also be liable for the general interest charge.
A purchaser should be cautious when relying on a notice from the vendor. For example a purchaser cannot be considered to have “reasonably” relied on a notification by the vendor if it is clear GST would have been payable. Therefore it is important to seek legal advice regarding whether a contract would be subject to the GST withholding provisions.
A Vendor of residential premises or potential residential land must provide written notice to a Purchaser in accordance with Section 14-250 of Schedule 1 of the Tax Administration Act 1953 (Cth) stating whether GST withholding is required before settlement. This applies to all residential land except for:
1. supply of commercial residential premises; or
2. supply of potential residential land where the Purchaser is registered for GST and acquires the land for a creditable purpose (see Section 14-255(2) of Tax Administration Act (Cth).
A failure of a Vendor to comply with the withholding provisions is a strict liability offence with a maximum penalty of 100 units for an individual and 500 penalty units for a corporation. There is also an administrative penalty with a maximum 100 penalty units.
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